Sparks announces sale to Health Management Associates (Updated)

The Sparks Health System board of directors announced late Friday afternoon it had signed a tentative agreement to sell the hospital to Naples, Fla.-based Health Management Associates.

HMA is a publicly held company that recently reported $78.6 million in net income on total revenue of $2.34 billion for the first six months of 2009. And HMA is no stranger to the area. It operates Summit Medical Center in Van Buren and two Van Buren clinics — Cornerstone Family Clinic and Internal Medicine & Associates. However, HMA announced in 2006 its desire to sell its lease obligation with Summit Medical.

Updated info: With HMA operating similar facilities in the same market area, it is likely the Federal Trade Commission will have to grant approval to the deal.

HMA operates 56 hospitals with 8,121 licensed beds in non-urban communities in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Washington and West Virginia.

According to the statement issued by Sparks, The letter of intent begins the process of due diligence that would, ideally, lead to a definitive agreement between the two groups. A closing date is expected during the fourth quarter of 2009, according to Sparks. Hospital officials said no additional information will be given until the definitive letter is signed.

The announced sale is the second such attempt to sell Sparks within the past 5 months. Sparks announced March 30 it would sell to Jackson Healthcare, but that deal fell through by June 1.

“I feel very positive about the potential for a partner. Earlier this year, when we entered into discussions with another possible buyer, we were in a different position. Since that time we have seen very positive outcomes from many of the operational and strategic plans Sparks implemented, including a stringent focus on quality measures, reviewing and changing contracts, realigning staff to be better positioned in high-need areas, and putting more efficient processes in place to manage business affairs,” Sparks Board Chairman Judy Boreham noted in the statement.

Boreham also addressed an obvious question resulting from previous announcements by hospital officers that the hospital system was in better financial shape.
 
“Naturally, the question will arise that if all this is working, why sell? The reality is that although we are seeing success, we realize we still are not able to meet the long-term growth and capital needs that health care in Fort Smith requires. For example, we need to complete the surgical area in the Renaissance Building. We have over 40,000 square feet built and shelled in with the specific intent of offering the leading-edge surgical area in the region. Also, hospitals require updated technology each year. Being able to keep up with that pace of change and provide needed services to the community is paramount to the Sparks Health System,” Boreham explained.

John Merriwether, the vice president of investor relations for HMA, was unavailable for comment on Friday.

Prior to March 2009, Sparks Health System — with its more than 2,000 employees and more than 12,000 patients a year — was on the financial ropes. Moody’s rating service said the hospitals cash on hand of $7.5 million as of Dec. 31 was “a weak 11 days cash on hand and 12% cash to debt.” Also, Moody’s said in its February 2009 report that $6.9 million in 2008 capital expenditures served to lower the hospital’s cash position. In the first six months of fiscal year 2009, the hospital lost $12.9 million and posted a negative operating cash flow of $4.3 million. Moody’s suggested bankruptcy was a likely option.

Sparks CEO Frederick Woodrell said following the failed attempt with Jackson, Sparks continued seeking a financial partner but changed “the parameters of what we needed based on the positive changes occurring here.”

If the sale happens, Sparks said its employees would be offered employment by HMA at “market-competitive rates of compensation that includes benefits, accrued vacation, and sick time.”

Shares of Health Management Associates (NYSE: HMA) closed Friday at $6.52, down 28 cents. During the past 52 weeks, the share price has ranged from a $6.91 high to a 79 cent low.

2009 SPARKS CHRONOLOGY
March 30: Sparks Health System officials announce a tentative agreement to sell the hospital to Alpharetta, Ga.-based Jackson Healthcare. Terms of the deal were not disclosed, and both parties said the deal would close no later than June 30.

May 15: Sparks issued a statement saying it had extended the date for signing the agreement with Jackson. No reason was given for the extension.

June 1: Sparks officials withdraw from their decision to sell the hospital to Jackson Healthcare. Sparks CEO Frederick Woodrell noted in a statement: “The execution of this or any other complex financial transaction is unfortunately compromised by the financial environment. We remain in the lowest economic downturn in the country’s recent history. While both sides were committed to a successful outcome, the circumstances just did not allow for an arrangement that the parties could execute on a mutually acceptable time frame. This was simply a business decision based solely on what was the right thing for Sparks and the community.”

July 2: Sparks CEO Frederick Woodrell tells The City Wire in an interview that the hospital system was in a better financial situation and not being forced to find a financial savior. He said the hospital began seeing positive cash flow in January and that continued through May. It will take “several years” before the hospital is financially strong, but Woodrell said the pressure is off the Sparks Board of Trustees to quickly find a financial relief valve.

July 7: The City Wire obtained a copy of a June 11 report from Moody’s confirming that finances had improved for Sparks Health System. Moody’s said cash flow was positive for the first 10 months of the hospital’s fiscal year.

Aug. 14: Sparks announces intent to sell hospital system to Health Management Associates.

STATEMENT FROM SPARKS HEALTH SYSTEM
FORT SMITH, AR. (August 14, 2009) – The Sparks Health System Board of Trustees today approved a non-binding letter of intent for a purchase of Sparks by Health Management Associates, Inc. (NYSE: HMA).

Board Chairman Judy Boreham said the transaction comes during an interesting time for Sparks.  "I feel very positive about the potential for a partner. Earlier this year, when we entered into discussions with another possible buyer, we were in a different position. Since that time we have seen very positive outcomes from many of the operational and strategic plans Sparks implemented, including a stringent focus on quality measures, reviewing and changing contracts, realigning staff to be better positioned in high-need areas, and putting more efficient processes in place to manage business affairs. As a result, we are providing quality health care to more and more people."

She continued, "Naturally, the question will arise that if all this is working, why sell? The reality is that although we are seeing success, we realize we still are not able to meet the long-term growth and capital needs that health care in Fort Smith requires. For example, we need to complete the surgical area in the Renaissance Building. We have over 40,000 square feet built and shelled in with the specific intent of offering the leading-edge surgical area in the region. Also, hospitals require updated technology each year. Being able to keep up with that pace of change and provide needed services to the community is paramount to the Sparks Health System."

The board’s selection of Health Management is the result of a careful search that has been going on for over eight months.

"When the discussions with Jackson ended, we didn’t just stop consideration for a partner,” explained Frederick Woodrell, Chief Executive Officer for Sparks Health System. “We did change the parameters of what we needed based on the positive changes occurring here. But we were never interested in just selling Sparks. Given our 122-year history of service to the community, we wanted to find someone to truly partner with us. We have known for a long time that we have the finest group of physicians and employees in the area, providing high-quality services and compassionate care, and this reinforces that."

It is expected that all personnel employed by Sparks Health System at closing would be offered employment by Health Management at market-competitive rates of compensation that includes benefits, accrued vacation, and sick time. Employees’ length of service with Sparks would be applied for purposes of benefits vesting.

Sparks’ Chief of Staff, Charles Jennings, M.D., an Internal Medicine physician who is part of the Sparks Clinic and also serves on the Sparks Health System Board of Trustees, said the decision is good news for physicians, the health system and the community. “I’m pleased with the selection of Health Management. They have a nationally known reputation for supporting community hospitals and they bring experience and commitment to the equation,” Dr. Jennings said.

The letter of intent ratified by the Sparks Board of Trustees today between Sparks Health System and Health Management is non-binding and subject to negotiation of the Definitive Purchase Agreement. The parties will immediately begin due diligence with the goal of signing a definitive agreement with an expected close date of the transaction to occur during the fourth quarter of 2009.